Preferred Dividends

National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which ahs a stated annual dividend of $9 per share. The company has been losing money and has not paid the preferred dividends for the last five years. There are 300,000 shares of preferred stock outstanding and 600,000 shares of common stock.

a. How much is the company behind in preferred dividends?

b. If NHC earns $11,000,000 in the coming year after taxes but before dividends, and this is all paid out to the preferred stockholders, how much will the company be in arrears (behind in payments)? Keep in mind that the coming year would represent the sixth year.

c. How much, if any, would be available in common stock dividends in the coming year if $11,000,000 is earned, as indicated in part b?

Solution Preview

a. How much is the company behind in preferred dividends?

Total preferred stock outstanding is 300,000 shares and the annual dividend is $9 per share. The total amount of dividend per year is 2,700,000. Dividends have not been paid ...

Solution Summary

The solution explains how to calculate the amount of dividends due to cumulative preferred stock if dividends are in arrears.